Are Rogue Websites Really So Bad After All?

In the ongoing debate over SOPA, PIPA, and rogue websites legislation, most commentators have focused on what Congress should and shouldn’t do to combat these sites. Less attention, however, has been paid to the underlying assumption that these rogue websites represent a public policy problem. While no one has defended websites that defraud consumers by deceptively selling them fake pharmaceuticals and other counterfeit goods, many consumers who frequent “rogue websites” do so for the express purpose of downloading copyright infringing content.

As Julian Sanchez explains over on Cato-at-Liberty, how the latter category of rogue websites (including The Pirate Bay and, until last week, MegaUpload) affects the U.S. economy and social welfare is hotly contested in the economic literature:

[I]t’s become an indisputable premise in Washington that there’s an enormous piracy problem, that it’s having a devastating impact on U.S. content industries, and that some kind of aggressive new legislation is needed tout suite to stanch the bleeding. Despite the fact that the [GAO] recently concluded that it is “difficult, if not impossible, to quantify the net effect of counterfeiting and piracy on the economy as a whole,” our legislative class has somehow determined that . . . this is an urgent priority. Obviously, there’s quite a lot of copyrighted material circulating on the Internet without authorization, and other things equal, one would like to see less of it. But does the best available evidence show that this is inflicting such catastrophic economic harm—that it is depressing so much output, and destroying so many jobs—that Congress has no option but to Do Something immediately? Bearing the GAO’s warning in mind, the data we do have doesn’t remotely seem to justify the DEFCON One rhetoric that now appears to be obligatory on the Hill. The International Intellectual Property Alliance . . . actually paints a picture of industries that, far from being “killed” by piracy, are already weathering a harsh economic climate better than most, and have far outperformed the overall U.S. economy through the current recession.

Nevertheless, in my view, rogue websites dedicated to the infringement of U.S. copyrights pose a public policy problem that merits not only serious congressional attention, but also prompt (albeit prudent) legislative action. While I’m relieved that the flawed SOPA and PIPA bills seem unlikely to pass in their current forms, I also think it would be unwise for Congress to dither on rogue sites legislation for years in search of “credible data” about how such sites impact our economy.

Why am I urging policymakers act without “all the facts?” Two reasons. First, I’m quite skeptical that we’ll obtain anything resembling dispositive data on the question of how rogue websites impact consumer welfare in the foreseeable future. Countless academics have spent years seeking to understand how often consumers download content on rogue websites, how frequently consumers substitute unlawful content for the lawful kind, and the extent to which copyright infringement indirectly benefits creators by inducing greater overall content consumption. Yet reliable data on these topics remains the stuff of dreams.

Second, the ease with which U.S. consumers can and do access near-perfect infringing copies of movies, songs, television shows, and video games gives rise to a reasonable presumption that we’d probably be better off if Congress were to throw up at least some carefully-constructed roadblocks to obstruct rogue sites. That’s because if such roadblocks are erected, the consumers most likely to shift from unlawful to lawful consumption of content are also the same consumers who are most likely to benefit social welfare (and the U.S. economy) if they pay more for the content they value and enjoy.

Imagine two hypothetical “pirates” (or users who frequently infringe on copyrighted works, if you prefer less loaded terminology). Pirate #1 is a broke college sophomore with a subsidized ultra-fast broadband connection and eons of spare time on his hands. While this pirate lacks the disposable income to pay for content at virtually any price, he’s perfectly willing to spend hours on end sitting hunched over a laptop in his dorm room scouring various Web forums for links to his favorite TV shows and movies, most of which are available unlawfully on cyberlockers, Bittorrent, Usenet, etc.

Pirate #2 is a 30-something, tech-savvy mid-career IT professional with plenty of disposable income. Even though he owns a Blu-ray player and could afford to buy or rent several discs per month, he instead opts to download Blu-ray image files on his 50Mbps Verizon FiOS connection and watches them on a laptop hooked up to his high-def television. Using his Mastercard, he spends $10 a month to subscribe to a popular Seychelles-based content search website that enables him to find picture-perfect movie rips in seconds. Although he has the means to pay for content, he sees no reason to bother with physical discs, DRM, and platform restrictions given that pirated content is so much cheaper, and virtually as accessible. While he ultimately purchases some of the content he acquires unlawfully, attending the occasional live concert and theatrical performance, he only does so occasionally. He has few moral qualms about his behavior; with millions of other consumers paying for the content he enjoys, what difference can one more legitimate purchaser make? (Julian correctly observes that some individuals who “sample” music through illicit outlets ultimately spend more money on artists because they’re more likely to attend live performances. However, given the growing prevalence of free and lawful sources of music “samples,” and considering that piracy’s effects on creators of other types of content (e.g. movies, TV shows, video games) is far less ambiguous, the “file sharing actually benefits artists” hypothesis is hardly persuasive).

Turning back to the issue of rogue sites legislation, a law that serves only to make it impossible for Pirate #1 (and the millions in America like him) to access infringing content won’t do anybody much good. Content creators won’t get paid more, as Pirate #1 has no money, while the aggregate utility society derives from artists’ expressive works will decrease. Instead of enjoying movies and music acquired unlawfully, Pirate #1 will simply find another, presumably inferior, way to spend his free time. It’s a no-win situation.

But a law that makes it impossible for Pirate #2 (and the millions like him) to access infringing content would almost certainly benefit content creators — and society at large. No longer able to download movies, TV shows, and video games illegally, Pirate #2 might consume less overall content, but he’ll also pay for a lotmore lawfully-acquired content. He’ll spend less of his disposable income on goods and services other than content, meaning some legitimate businesses will experience a decline in revenue. But since Pirate #2’s overall spending habits will more closely match his true consumption preferences, society’s aggregate resources will likely end up being allocated more efficiently than before .

The virtue of a “follow the money” approach to rogue websites is that it’s likely to curb piracy by users like Pirate #2, who are already willing and able to pay for legitimate content. Users who have a credit card and use it to pay for infringing content — or for services that facilitate access to infringing content — presumably have at least some disposable income to spend on expressive works. While rogue websites legislation is likely to leave many, if not most, websites that facilitate piracy unaffected, disabling U.S. payment services from doing business with a handful of especially popular offshore piracy sites will frustrate users. Many of these users will simply seek out alternatives, but some users will give up and “go legitimate.” By driving piracy further underground, such a law might cause users like Pirate #1 to spend more of their relatively worthless time seeking out infringing content. But this is the Internet we’re talking about; the determined user will find what he seeks, no matter the roadblocks lawmakers throw up.

Whether a targeted law aimed at combating offshore rogue sites’ revenue sources would, on net, measurably benefit the U.S. economy is far from certain. But even a law that has greater-than-even odds of improving aggregate social welfare by the equivalent of a few hundred million dollars amounts to a step in the right direction. In a world of uncertainty, we all make decisions with harshly limited knowledge every day. All else equal, making highly-informed decisions is vastly superior to educated guesses, but educated guesses are often the best feasible option.

In an ideal world, of course, Congress would be focused on far more crucial legislative priorities than combating rogue websites, such as solving the entitlement mess, fixing America’s overly litigious legal system, reining in the ever-growing regulatory state, and even reforming the Copyright Act to reduce the insanely long term of copyright protection. But given that both the House and Senate Judiciary Committees, which handle copyright legislation, seem more focused on undermining our liberty and prosperity than on enhancing it — from data retention to employment verification mandates to the PATRIOT Act renewal — passing a consensus rogue websites bill may be the best of all feasible outcomes this session of Congress.

If lawmakers act swiftly but carefully — holding a handful of additional hearings, focusing on crafting legislation that Silicon Valley can tolerate (if not embrace), and emphasizing a transparent process — there may still be hope for prudent rogue websites legislation this session. And that could be a good thing.

Ryan Radia / Ryan is associate director of technology studies at the Competitive Enterprise Institute, where his work focuses on adapting law and policy to the unique challenges of the information age. His research areas include privacy, IP telecommunications, competition policy, and media regulation.